NYSE volumes highlight Europe/US trading divergence

Transatlantic exchange group NYSE Euronext yesterday reported increased trading volumes in its US cash equities business in the first quarter, but a slump in the corresponding activity in Europe over the same period, underscoring the structural differences between the two markets.

Transatlantic exchange group NYSE Euronext yesterday reported increased trading volumes in its US cash equities business in the first quarter, but a slump in the corresponding activity in Europe over the same period, underscoring the structural differences between the two markets.

The average daily trading volume across the group’s US equity markets in Q1 2009 was 4 billion shares, a 14.5% increase over the same period last year. However, in Europe, NYSE Euronext’s first-quarter average daily volume was 1.4 million transactions – a decrease of 17.3% from the record 1.7 million transactions reported in Q1 2008.

NYSE Euronext’s Q1 net profit fell to $104 million from $230 million in the same period last year.

The results echo volume trends at other exchanges. For example, for March 2009 Nasdaq OMX Group, which operates exchanges in Northern Europe and Dubai as well as its core platform in New York, reported a 10% increase in average daily matched volume compared with March 2009. Over the same period, German stock exchange Deutsche Börse reported an 8% drop in transaction volume to 15.7 million.

The main reason for the differences is the stronger role of exchange-traded funds (ETFs) in the US equities market, according to Ana Avramovic, portfolio strategist at investment bank Credit Suisse. “A large portion of the US market is driven by ETFs – they account for around 40% of the dollar value traded in the market,” she told theTRADEnews.com. “ETFs have become more popular in the current environment because they allow for quick asset allocation and reduce stock-specific risks. The ETF market is pretty insignificant in Europe.”

Another reason for the differing volume trends in the two markets is the higher proportion of high-frequency traders in the US. Credit Suisse estimates they account for around half of the dollar value traded in the US equity market. While high-frequency traders have started to make inroads into Europe, attracted by the launch of low-latency, low-cost trading platforms such as Chi-X and Turquoise, they have yet to make as big an impact as in the US.

“High-frequency traders are less prominent in the European and Asian markets, partly because higher transaction costs reduce the effectiveness of their strategies,” said Avramovic. “The US has possibly the lowest transaction costs in the world, which makes high-frequency trading more attractive and successful.”

Although the microstructure of the European equities market is evolving to become more like that of the US in some ways, the two markets are likely to remain different for some time. “Based on current trends, ETFs could represent over half of the value traded in the US by 2010,” said Avramovic. “That is a large driver of liquidity, which is absent from the European market.”